Duratex. Equity Research. Depressed consumer overshadows solid business. Latin America Pulp & Paper Company Note 27 January 2015

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1 Equity Research Duratex Depressed consumer overshadows solid business A well-rounded company suffering from a weak macro; Assume with a Neutral Although Duratex s strong branding, dominant market share and integrated model set its business as an industry benchmark, a weak macro environment is denting its recent performance. Declining consumer confidence levels and tighter financing conditions have resulted in a pocket of weak pricing power, declining operating rates and the postponement of projects. A turnaround of Duratex s high-ticket discretionary consumer business depends ultimately on the restoration of consumer confidence, which in our opinion is still distant. We are assuming coverage with a Neutral rating. Focus themes: A tough market for a high-ticket consumer discretionary (1) Pricing: Weak demand for MDP and Deca products has led to difficulties in implementing price increases for Duratex. (2) Real estate play? While a headwind, we calculate revenue exposure of approximately 18% only. (3) BRL weakness, a risk: ~25% of costs in USD vs. 7% of revenues. (4) M&A: The company has a strong track record and is monitoring opportunities (leverage limit set at 3x). (5) Rationing risks: The company is fully locked-in long-term contracts, but could be potentially negatively exposed. As opposed to pulp, no excess energy is generated in production process. Latin America Pulp & Paper Company Note 27 January 2015 Rating 12m Price Target Price RIC: DTEX3, BBG: DTEX3 BZ Trading Data and Return Forecasts Neutral R$8.50/US$3.29 R$7.60/US$ wk range R$ /US$ Market cap. R$5,058m/US$1,958m Shares o/s (m) Free float 40% Avg. daily volume('000 Shares) 1,875 Avg. daily value (R$ m) 15.0 Forecast price appreciation +11.8% Forecast dividend yield 1.4% Forecast stock return +13.3% Stock Performance (R$) A longer-term normalization call: FCF yields of ~10% / ROEs of ~10-11% Duratex s attractive long-term returns are one of its main selling points. Although visibility on macro drivers looks bleak in the next few years, Duratex should be able to recover its pricing power and rebuild margins once its ability to allocate volumes is restored. We expect it to deliver LT ROEs of ~11% and FCF yields to average ~10%. These return metrics look quite attractive, especially compared to other stocks in our coverage (with ROEs well below 10%). Valuation Near-term earnings momentum weak; 2015 multiples stretched Our TP of R$8.5 is derived from a mid-cycle discounted cash flow to firm valuation model (DCFF) based on nominal US$ cash flows and a WACC of 10.3%. We see shares trading at 7.2x EBITDA 15 (vs. normalized level of 6.5x) and 17x P/E 15 (vs. 12x). We also expect consensus downgrades and set our 2015 EBITDA at R$935mn 20% below the street. Valuation 12/ / /2014E 12/2015E 12/2016E RoIC (EBIT) % EV/EBITDA P/E Net dividend yield % Financials (R$mn) 12/ / /2014E 12/2015E 12/2016E Revenues 3,394 3,882 4,029 3,969 4,282 EBITDA 1,006 1, ,043 Net Income EPS (R$) Net DPS (R$) Net (debt) / cash (1,370) (1,448) (1,802) (1,700) (1,623) Source: Company reports, Bovespa, BTG Pactual S.A. estimates. / Valuations: based on the last share price of the year; (E) based on a share price of R$7.60, on 26 January Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct-14 Price Target (R$) Stock Price (R$) Rel. Ibovespa Leonardo Correa Brazil Banco BTG Pactual S.A. leonardo.correa@btgpactual.com Caio Ribeiro Brazil Banco BTG Pactual S.A. caio.ribeiro@btgpactual.com Jan ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 13 Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 27 January 2015 page 2 IC A struggling high-ticket consumer discretionary play Main competitive advantages arise from: dominant market share, fullyintegrated operational structure and solid branding. With an ample forestry base (270,000 ha / 50% leased), an extensive distribution network and geographic proximity to client-base, Duratex operates under one of the most compact cost bases in the industry. Nationally recognized as a premium brand in Brazil (mainly Deca). Its clients tend to be more concentrated in the middle and upper classes. Duratex is listed in the Novo Mercado. Control of the company is also an area of strength; it is shared by Itausa (40%) and Ligna (20%), and the rest is free float (most of the shareholder base is comprised of foreign investors). M&A has historically been accretive. And current scenario could offer interesting opportunities in different markets (at what price?). As a high-ticket domestic discretionary play, Duratex is highly sensitive to consumer confidence and financing conditions. It has been delivering an operating rate of ~70% for its wood division vs. a normalized level of 80%. Macro taking its toll. A play on Brazilian real estate? We disagree and calculate revenue exposure of only ~18%. However, the outlook is concerning. Weak demand for MDP/Deca products has led to difficulty in implementing price increases for Duratex. 2 years without any real price increases (safe for MDF). With a discouraging outlook for civil construction ahead, the Deca division continues to be an area of concern and pricing power seems greatly diminished. Depreciation of the BRL should weigh on costs (~25% of costs in USD vs. 7% of revenues). 10% BRL depreciation leads to -4% EBITDA impact.

3 27 January 2015 page 3 Duratex Bad macro overrides a good business, for now We are assuming coverage of Duratex with a target price of R$8.5 and a Neutral rating. We like the company s strong branding power, market positioning, status as the lowest cost producer in the region and attractive long-term returns. Duratex has historically delivered attractive normalized returns in the 10-14% range and superior margins in comparison to competitors due to its fully-integrated operational base, proximity to client base and strong pricing power. However, we are more cautious on deteriorating macro indicators (declining consumer confidence and construction materials index), weaker economic growth perspectives and the impact of tighter credit. These factors make it difficult for Duratex to outperform in the near-term, in our view. Duratex trades at a 2015 EV/EBITDA multiple of 7.2x (vs its historical multiple of 6.5x) which we believe is demanding given the current macroeconomic outlook. Solid fundamentals: Dominant market share, Fully-integrated, Strong branding Duratex s main competitive advantages arise from three pillars: dominant market share, fully-integrated operational structure and solid branding. All of these factors help solidify its place as the price maker in the Brazilian wood panel and bathroom fixtures industries. Dominant market share. The company is the largest producer of wood panels and bathroom fixtures in the Southern Hemisphere. Its strong market share in both the Deca and the Wood division (~40% share) help solidify its pricing power which enables the company to deliver superior margins/returns in comparison to peers. In a normalized scenario, the company has managed to push price increases above inflation, before other industry peers. Chart 1: Duratex EBITDA margins in comparison to industry peers Chart 2: Duratex ROE Source: Company data; BTG Pactual; *Inferred EBITDA margins for Arauco s wood panel division Source: Duratex; BTG Pactual Fully-integrated operational structure. Duratex is a leader in its industry with the lowest cost structure as a result of its fully integrated operational structure. With an ample forestry base (270,000 ha / 50% leased = vertical integration) and an extensive

4 27 January 2015 page 4 distribution network, Duratex operates under one of the most compact cost bases in the industry. In addition, Duratex s forestry yields are well above Brazil averages (52m 3 /ha/yr vs. an average of 45m 3 /ha/yr). Operations are focused in the South and Southeast and its products are delivered nationally in a cost-efficient way benefitting from geographical positioning (low distances from forest to plant to customer). This integrated operational structure allows Duratex to have a cost-advantage over peers. Branding power. Both Deca and Duratex enjoy strong branding power, although we would argue that the former is the most recognized brand. Our understanding is that Deca can apply up to 50% premiums to competitors given its dominant branding power. The company s clients tend to be more concentrated in the middle and upper classes. Corporate governance and support from a strong controlling group. Duratex is listed in the Novo Mercado the highest level of corporate governance defined by BM&F Bovespa. Control of the company is yet another area of strength; it is shared by Itausa (40%) and Ligna (20%), and the rest is free float (most of the shareholder base is comprised of foreign investors). Itausa are the same controllers of Itau Unibanco and Ligna is an investment group that has a controlling interest in a wood panel retail distributor called Leo Madeira and a minority stake in a construction materials department store called Leroy Merlin. Wood panel industry strong past performance but resilience will be tested The wood panel industry in Brazil has grown at a 9 year CAGR of 8% or 2-3x GDP in the past. The industry has remained over time relatively protected from import pressures with imports accounting for less than 5% of apparent demand, however, the industry has suffered in times of weak GDP growth like During years of poor economic performance, the industry s elasticity to GDP growth was temporarily reduced. This year was no different with Duratex facing strong headwinds on the demand front for its MDP products. Chart 3: Wood panel elasticity to GDP growth Source: ABIPA, BTG Pactual

5 27 January 2015 page 5 Throughout 2014, Duratex has been delivering an operating rate of ~70% for its wood division vs. a normalized level of 80%, while its peers have faced similar issues in allocating volumes this year. With GDP growth nearly flat in 2014 and our economics team expecting another year of weak growth in 2015 (a contraction seems increasingly likely, in our view), the economic environment for Duratex remains challenging in the near term. This will test the industry s capacity to deliver wood volumes between 2-3x GDP growth and increase operating rates. Chart 4: Duratex s operating Rates Source: Duratex; BTG Pactual Macro environment remains challenging As a high-ticket consumer discretionary play, Duratex is highly sensitive to consumer confidence, which in turn is directly impacted by the overall macro environment. As a result, indicators such as consumer confidence and financing conditions are highly correlated to the performance of Duratex stock. Throughout 2014 we have seen rising inflation, decelerating real wage growth, and stagnant GDP growth which all seem to indicate that the country will face substantial headwinds in the near future. In addition, consumer confidence and the construction material indexes, both relevant indicators for Duratex, have been reaching multi-year lows recently. This current macroeconomic scenario has remained a challenge for Duratex with main drivers continuing to point southwards. Chart 5: FGV Consumer confidence index Chart 6: ABRAMAT index Source: FGV; BTG Pactual Source: ABRAMAT; BTG Pactual

6 27 January 2015 page 6 Perhaps one of the most important variables for Duratex is financing. Given that a large part of the company s revenue is attributed to home renovations which depend on attractive financing conditions, Duratex relies on an environment where credit is cheap and readily available. Recently, the Central Bank has been taking a more aggressive stance against inflation. During the three latest COPOM meetings, interest rates were increased from 11% to 12.25%, signaling a credit tightening cycle ahead. In addition, there has been a clear deceleration in system loan growth in Brazil with public banks decelerating from 20-24% y/y loan growth in 2013 to 17-19% currently in With yet another credit tightening cycle in sight and with more restrictions being placed on retail loans throughout 2014 and potentially in 2015, we remain concerned on financing attractiveness going forward. Duratex s pricing power was clearly diminished as a result of weak demand conditions in 2014 and we believe that a potential credit tightening ahead could be even more detrimental to its business. Chart 7: Brazil credit expansion (y/y growth) Source: BCB; BTG Pactual Exposure to Real estate is limited; however outlook is concerning Duratex has in the past been identified as a play on Brazilian real estate. Despite a connection with the sector, we disagree with this assessment and believe that it is in fact much more of a consumer discretionary stock than a real estate play. From our numbers, we arrive at the conclusion that approximately 18% of Duratex revenues are directly sourced from real estate companies. Deca (30% of consolidated EBITDA) typically sells around 18% of its volumes to construction companies whereas for the Wood segment (70% of consolidated EBITDA) this number varies between 7-8%. The furniture industry represents a much more relevant client for Duratex comprising around 81% of company revenues. It is worth noting that Duratex s most profitable sales revolve around its wholesale/furniture clients since the company is able to leverage its integrated operations to ship large volumes to a single client and in this way report stronger margins.

7 27 January 2015 page 7 Chart 8: Wood division volumes breakdown (3Q14) Chart 9: Deca volumes breakdown (3Q14) Source: Company data; BTG Pactual Source: Company data; BTG Pactual The real estate sector in Brazil has been under significant pressure over the past few years (wage pressures, land bank costs, tightening credit ). As a result, project launches in Brazil have decelerated and the outlook is concerning (mainly for listed companies). Real estate companies are now much more focused on selling available stock rather than launching new projects. While this segment is less profitable for Duratex (i.e. lower margin Deca products sold), we feel the outlook for real estate requires some attention. Thus, a continued deceleration of the real estate market could have a modest impact on Duratex s sales volumes. Chart 10: Brazilian real estate project launches (R$mn) Source: Bloomberg, BTG Pactual Pricing power impaired in the near-term Weak demand for MDP and Deca products has led to difficulty in implementing price increases for Duratex. As of now, the company has spent 2 years without any real price increases (safe for MDF products). The difficulty experienced by the company in implementing price increases throughout 2014 is something to be monitored. Duratex has usually been able to deliver price increases in the 2H given the stronger demand associated with the holiday season. This year it seems unlikely that the company will be able to implement price increases for MDP and Deca products which signal that margin pressures could persist in the near term. Given the typically weaker demand

8 27 January 2015 page 8 environment in the 1H, we could be looking at another 6 months without an attractive pricing environment for the brand. Earnings momentum: operating rates below normal; margin and ROE shrinking Duratex has faced a difficult year with demand down for both the Deca and the Wood panel division. Operating rates hit 60% for the wood panel division and 70-75% for Deca (vs. normalized levels of 80%) in 1H14 and normalized market shares of around 40% were pushed down below 35% in 2Q14. This led the company to offer discounts to compensate for falling volumes and market share. As a result, margins compressed from 30% in 4Q13 to 22% in 3Q14 and ROE decreased from 12% to 8% currently. Despite a slight pickup in operating rates from 60% in the wood division to a 70% level and a slight recovery in Deca in 3Q14 we feel that a turnaround is not yet in sight. The company has only been able to recover some pricing on MDF products but Deca and MDP are still offering strong resistance. Although volumes should come in stronger in 4Q14 driven by a stronger seasonality effect (holiday season), prices should remain stable which should translate into similar margins as 3Q14 (22-24%). The difficulty the company has encountered in implementing price increases remains one of our biggest concerns. Chart 11: EBITDA margin evolution Source: Duratex; BTG Pactual Cost pressures to remain; BRL depreciation a structural headwind On the cost side, inflationary pressures and exchange rate variations could damage margins further. Relatively low operating rates could impact cost-dilution benefits as well. It is worth mentioning that depreciation of the BRL should also weigh on costs (~25% of costs in USD while only 7% of revenues in USD). According to our numbers, a 10% depreciation of the BRL leads to a negative impact of 4% in EBITDA. As a result, we expect continued pressure on margins throughout 2015.

9 27 January 2015 page 9 Chart 12: Wood 3Q14 costs breakdown Chart 13: Deca 3Q14 costs breakdown Source: Duratex; BTG Pactual Source: Duratex; BTG Pactual Energy/water rationing risks how is Duratex positioned? Unlike the pulp players in our coverage universe, Duratex s production process does not lead to energy generation (neither surplus sales), but energy costs represent a relatively small fraction of its cost structure (8-10% for Wood and 3-5% for Deca). The company has taken measures to protect itself from high spot prices by contracting 100% of its energy needs and eliminating its exposure to the spot market. Duratex is fully-contracted for the next two years which eliminates our concern over potentially high energy costs resulting from currently high spot prices in Brazil. However, energy shortages are a rising concern. In addition, exposure to a water rationing scenario is limited. A large percentage of Duratex s operations use water from the company s own underground wells and should a water shortage materialize, Duratex would be hedged to a certain degree. However, the impacts on the end-user demand side are harder to forecast and could be relevant. Growth shelved for now. Waiting for better market conditions It is worth mentioning that capacity expansions that were expected over the next few years were shelved (Duratex was adding 700ktpa in 2016 and 700ktpa in 2017). The delay in launching these capacity expansions is a sensible approach given that it will still take a couple of years at least for the company to fill its excess capacity. In the Deca division, the company announced a temporary shutdown of a capacity of 700,000 units of metal at its Jundiai plant a result of a currently challenging demand environment for this division. M&A offers an alternative (value accretive) growth route but at what price? Duratex has in the past successfully consolidated acquisitions and leveraged its superior brand and distribution network to improve returns. In 2013, the company acquired Thermosystem and Mipel to consolidate with its Deca division and by leveraging similar manufacturing processes and a stronger brand name, they were able to boost returns for these acquisitions to the low 20s range from high-teens previously. In the wood division, the improvement in yields in Tablemac operations

10 27 January 2015 page 10 should be instrumental in making this acquisition more relevant for Duratex going forward. Given the currently weak macro scenario, it is possible that attractive opportunities may arise for Duratex in the M&A field. Despite currently comfortable leverage ratios, pricing will remain an important variable to take into account for these acquisitions (as is the case for any M&A story). The company essentially aims to maintain its debt ceiling of 3x net debt/ebitda (currently at 1.7x net debt/ebitda) which means that it has around R$1.7bn of leeway in terms of new debt to tackle an acquisition. The company believes that more opportunities exist in the Deca division and the focus continues to be Brazil but LatAm is a secondary option. Tablemac Space to develop a brand abroad Although the acquisition is small and represents around 5-6% of Duratex consolidated revenues, it offers an interesting expansionary route for the company into a high growth neighboring market. On a relative basis, Tablemac has historically delivered margins below Duratex (mid 20s vs mid 30s at Duratex). In addition, observed yields in Colombia are much lower than Duratex s delivered yields at its operations in Brazil (38m 3 /ha/yr vs. 52m 3 /ha/yr). By incorporating its clones into the forestry process and by expanding the mechanization of the harvesting and industrial stages, Duratex expects to boost these yields and improve margins at Tablemac and in this way unlock value from this acquisition. The acquisition also offers a certain degree of diversification for Duratex s portfolio allowing it to gain a foothold in a new market with different business cycles. It allows the company to establish itself as a player in the Colombian market, an economy that has grown consistently by 4% annually over the past 4 years. In our view, the Tablemac acquisition s main significance is that it gives Duratex an inexpensive viable route to growth outside of Brazil. FCF and ROE outlook FCF yields to normalize at ~10%; ROEs at ~10-11% As we mentioned previously, Duratex s attractive long-term returns are one of the main selling points of the company. Although the company is currently facing a challenging period that has depressed its operational numbers to sub-optimal figures, we feel that this is a cyclical movement rather than a structural shift. Although visibility on macroeconomic factors looks bleak in the next few years, looking further ahead Duratex should be able to recover its pricing power once its ability to allocate volumes is restored. This in turn will allow the company to rebuild its margins and as a result, go back to delivering its strong historical returns. We project ROE for this company to reach ~11% in the long-term and FCF yields to average ~10%. Thus, compared to the other players in our coverage universe which deliver ROEs below 10%, these numbers look quite attractive. However, the ability of the company to reach these levels rests heavily on its capacity to regain its pricing power, which looks unlikely in the short-term.

11 27 January 2015 page 11 Chart 14: FCF yield, ROA and ROE progression Source: Duratex; BTG Pactual Risks In our view, the main risks for Duratex investment case include: (1) weaker than expected demand for wood and Deca products as a result of declining macroeconomic indicators; (2) further credit tightening which could restrict financing conditions; (3) overpaying for acquisitions; (4) continued inflationary pressures on costs and inability to pass-through price increases which could erode margins and returns. Valuation: R$8.5 target price For Duratex shares, we have a target price of R$8.5. We employ a mid-cycle discounted cash flow to firm valuation model (DCFF) based on nominal US$ cash flows. Our nominal (US$ based) weighted average cost of capital (WACC) assumption of 10.3% is based on: (1) cost of equity of 12.2%; (2) target capital structure (D/(D+E)) of 35%; (3) effective tax rate of 20%; and (4) cost of debt of 8.5%.

12 27 January 2015 page 12 Table 1: Duratex s Financial Summary DURATEX Stock rating / Sector Rating Neutral # shares (million) 666 Price (R$) 7.5 Market Cap (R$ million) 4,992 Target 8.5 Income Statement (R$ mn) E 2015E 2016E 2017E Operating Metrics E 2015E 2016E 2017E Net Revenues 3,882 4,029 3,969 4,282 4,596 Wood Vol ('000 m3) 2,668 2,842 2,813 2,898 3,014 COGS -2,533-2,792-2,847-3,032-3,218 Avg. Wood Price ('000 R$/m3) ,028 Gross Profit 1,349 1,236 1,123 1,250 1,378 DECA Vol (mn units) 27,983 27,460 26,028 27,113 27,836 EBIT Avg. DECA Price ('000 R$/unit) Net Financial Result Non-oper revenues Wood cash cost R$/m Equity Income DECA cash cost R$/t EBT Income tax Minority Interest Net Income EPS EBITDA 1, ,043 1,138 Balance Sheet (R$ mn) E 2015E 2016E 2017E Selective Ratios E 2015E 2016E 2017E Total assets 8,178 8,777 8,861 9,161 9,507 EBITDA Margin (%) 31% 23% 24% 24% 25% Cash ,087 EBIT Margin (%) 21% 16% 15% 16% 17% Inventory EBT Margin (%) 18% 11% 9% 11% 12% Receivables 874 1, ,011 1,085 Net Margin (%) 13% 9% 7% 9% 10% Investments/Goodwill Accounts payable Net Debt/EBITDA 1.2x 1.9x 1.8x 1.6x 1.3x PP&E 4,582 5,144 5,216 5,298 5,402 Net Debt/Equity 33% 39% 36% 32% 29% Net Debt /Total Capital 25% 28% 26% 25% 22% Gross Debt 2,445 2,610 2,610 2,610 2,610 Interest Coverage 5.4x 3.1x 3.0x 3.3x 3.6x Minority Interest Capex/Sales 15% 16% 11% 11% 11% Book value 4,365 4,599 4,740 5,000 5,305 Capex/Depreciation 1.5x 2.0x 1.3x 1.3x 1.3x Net debt 1,448 1,802 1,700 1,623 1,524 Total Assets/Debt 3.3x 3.4x 3.4x 3.5x 3.6x Simplified Cash Flow (R$ mn) E 2015E 2016E 2017E Shareholder Structure ON TOTAL EBITDA 1, ,043 1,138 Itausa 40% 40% Change in working capital Ligna 20% 20% Financial Revenues Free float 40% 40% Financial expenses Income tax / Social contrib Operating cash flow TOTAL 100% 100% Valuation /Return metrics E 2015E 2016E 2017E Capex P/E 9.6x 13.3x 17.2x 13.1x 10.9x Investments in subsdiaries EV/EBITDA 5.4x 7.2x 7.2x 6.3x 5.7x Others / Acquisitions P/B 1.1x 1.1x 1.1x 1.0x 0.9x Investing cash flow P/OCF 7.0x 8.6x 7.3x 7.7x 6.8x FCF Equity Increase (decrease) in debt FCF yield (%) 2% -1% 5% 4% 5% Dividends Dividend yield (%) 4% 4% 3% 2% 3% Stock issued (Bought back) ROE 12% 8% 6% 8% 9% Others/ Divestments ROA 6% 4% 3% 4% 5% Financing cash flow ROIC 19% 15% 14% 15% 16% Ke 12% 12% 12% 12% 12% WACC 10% 10% 10% 10% 10% Change in cash position Spread (ROIC - WACC) 8% 5% 3% 5% 6% Source: Duratex; BTG Pactual

13 27 January 2015 page 13 Required Disclosures This report has been prepared by Banco BTG Pactual S.A. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. BTG Pactual Rating Buy Neutral Sell Definition Coverage *1 IB Services *2 Expected total return 10% above the company s sector average. Expected total return between +10% and -10% the company s sector average. Expected total return 10% below the company s sector average. 46% 42% 48% 47% 6% 15% 1: Percentage of companies under coverage globally within the 12-month rating category. 2: Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. Absolute return requirements Besides the abovementioned relative return requirements, the listed absolute return requirements must be followed: a) a Buy rated stock must have an expected total return above 15% b) a Neutral rated stock can not have an expected total return below -5% c) a stock with expected total return above 50% must be rated Buy Analyst Certification Each research analyst primarily responsible for the content of this investment research report, in whole or in part, certifies that: (i) all of the views expressed accurately reflect his or her personal views about those securities or issuers, and such recommendations were elaborated independently, including in relation to Banco BTG Pactual S.A. and/or its affiliates, as the case may be; (ii) no part of his or her compensation was, is, or will be, directly or indirectly, related to any specific recommendations or views contained herein or linked to the price of any of the securities discussed herein. Research analysts contributing to this report who are employed by a non-us Broker dealer are not registered/qualified as research analysts with FINRA and therefore are not subject to the restrictions contained in the FINRA rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. Part of the analyst compensation comes from the profits of Banco BTG Pactual S.A. as a whole and/or its affiliates and, consequently, revenues arisen from transactions held by Banco BTG Pactual S.A. and/or its affiliates. Where applicable, the analyst responsible for this report and certified pursuant to Brazilian regulations will be identified in bold on the first page of this report and will be the first name on the signature list. Statement of Risk Please note that any investment in Latin American equities is subject to exchange rate risk, as well as to unexpected fluctuations of the local economy. Investment in pulp & paper stocks is also subject to price fluctuations of its main products. Company Disclosures Company Name Reuters 12-mo rating Price Price date Duratex 1, 2, 4, 6, 18, 19, 20 DTEX3 Neutral R$ Within the past 12 months, Banco BTG Pactual S.A., its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. 2. Banco BTG Pactual S.A, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services and/or products and services other than investment services from this company/entity within the next three months. 4. This company/entity is, or within the past 12 months has been, a client of Banco BTG Pactual S.A., and investment banking services are being, or have been, provided. 6. Banco BTG Pactual S.A. and/or its affiliates receive compensation for any services rendered or presents any commercial relationships with this company, entity or person, entities or funds which represents the same interest of this company/entity. 18. As of the end of the month immediately preceding the date of publication of this report, neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries beneficially own 1% or more of any class of common equity securities 19. Neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries have managed or co-managed a public offering of securities for the company within the past 12 months. 20. Neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries engaged in market making activities in the subject company's securities at the time this research report was published.

14 27 January 2015 page 14 Duratex 20.0 Stock Price (R$) Price Target (R$) Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan-15 Buy Neutral Sell No Rating Source: BTG Pactual and Economatica. Prices as of 27 January 2015

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No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except with respect to information concerning Banco BTG Pactual S.A., its subsidiaries and affiliates, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. In all cases, investors should conduct their own investigation and analysis of such information before taking or omitting to take any action in relation to securities or markets that are analyzed in this report. BTG Pactual does not undertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses. Investments involve risks and investors should exercise prudence in making their investment decisions. BTG Pactual accepts no fiduciary duties to recipients of this report and in communicating this report is not acting in a fiduciary capacity. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst responsible for the substance of this report as of the date on which the report was issued and are therefore subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of BTG Pactual as a result of using different assumptions and criteria. Because the personal views of analysts may differ from one another, Banco BTG Pactual S.A., its subsidiaries and affiliates may have issued or may issue reports that are inconsistent with, and/or reach different conclusions from, the information presented herein. Any such opinions, estimates, and projections must not be construed as a representation that the matters referred to therein will occur. Prices and availability of financial instruments are indicative only and subject to change without notice. Research will initiate, update and cease coverage solely at the discretion of BTG Pactual Investment Bank Research Management. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information. BTG Pactual is under no obligation to update or keep current the information contained herein, except when terminating coverage of the companies discussed in the report. BTG Pactual relies on information barriers to control the flow of information contained in one or more areas within BTG Pactual, into other areas, units, groups or affiliates of BTG Pactual. The compensation of the analyst who prepared this report is determined by research management and senior management (not including investment banking). Analyst compensation is not based on investment banking revenues, however, compensation may relate to the revenues of BTG Pactual Investment Bank as a whole, of which investment banking, sales and trading are a part. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates and other market conditions. Past performance is not necessarily indicative of future results. If a financial instrument is denominated in a currency other than an investor s currency, a change in rates of exchange may adversely affect the value or price of or the income derived from any security or related instrument mentioned in this report, and the reader of this report assumes any currency risk. This report does not take into account the investment objectives, financial situation or particular needs of any particular investor. Investors should obtain independent financial advice based on their own particular circumstances before making an investment decision on the basis of the information contained herein. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither BTG Pactual nor any of its affiliates, nor any of their respective directors, employees or agents, accepts any liability for any loss or damage arising out of the use of all or any part of this report. Notwithstanding any other statement in this report, BTG Pactual UK does not seek to exclude or restrict any duty or liability that it may have to a client under the regulatory system in the UK (as such term is defined in the rules of the Financial Services Authority). Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transaction can or could have been effected at those prices and any prices do not necessarily reflect BTG Pactual internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions, by BTG Pactual S.A., BTG Pactual US, BTG Pactual UK, BTG Pactual Chile and BTG Pactual Peru and BTG Pactual Colombia or any other source, may yield substantially different results. This report may not be reproduced or redistributed to any other person, in whole or in part, for any purpose, without the prior written consent of BTG Pactual and BTG Pactual accepts no liability whatsoever for the actions of third parties in this respect. Additional information relating to the financial instruments discussed in this report is available upon request. BTG Pactual and its affiliates have in place arrangements to manage conflicts of interest that may arise between them and their respective clients and among their different clients. BTG Pactual and its affiliates are involved in a full range of financial and related services including banking, investment banking and the provision of investment services. As such, any of BTG Pactual or its affiliates may have a material interest or a conflict of interest in any services provided to clients by BTG Pactual or such affiliate. Business areas within BTG Pactual and among its affiliates operate independently of each other and restrict access by the particular individual(s) responsible for handling client affairs to certain areas of information where this is necessary in order to manage conflicts of interest or material interests. Any of BTG Pactual and its affiliates may: (a) have disclosed this report to companies that are analyzed herein and subsequently amended this report prior to publication; (b) give investment advice or provide other services to another person about or concerning any securities that are discussed in this report, which advice may not necessarily be consistent with or similar to the information in this report; (c) trade (or have traded) for its own account (or for or on behalf of clients), have either a long or short position in the securities that are discussed in this report (and may buy or sell such securities), with the securities that are discussed in this report; and/or (d) buy and sell units in a collective investment scheme where it is the trustee or operator (or an adviser) to the scheme, which units may reference securities that are discussed in this report. United Kingdom and EEA: Where this report is disseminated in the United Kingdom or elsewhere in the EEA by BTG Pactual UK, this report is issued by BTG Pactual UK only to, and is directed by BTG Pactual UK only at, persons who are professional clients or eligible counterparties, each as defined in the rules of the Financial Services Authority (together, referred to as relevant persons ). Where this report is disseminated in the UK by BTG Pactual, this report is issued only to and directed only at persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc") of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Dubai: This research report does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe for or purchase, any securities or investment products in the UAE (including the Dubai International Financial Centre) and accordingly should not be construed as such. Furthermore, this information is being made available on the basis that the recipient acknowledges and understands that the entities and securities to which it may relate have not been approved, licensed by or registered with the UAE Central Bank, Emirates Securities and Commodities Authority or the Dubai Financial Services Authority or any other relevant licensing authority or governmental agency in the UAE. The content of this report has not been approved by or filed with the UAE Central Bank or Dubai Financial Services Authority. United Arab Emirates Residents: This research report, and the information contained herein, does not constitute, and is not intended to constitute, a public offer of securities in the United Arab Emirates and accordingly should not be construed as such. The securities are only being offered to a limited number of sophisticated investors in the UAE who (a) are willing and able to conduct an independent investigation of the risks involved in an investment in such securities, and (b) upon their specific request. The securities have not been approved by or licensed or registered with the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the UAE. This research report is for the use of the named addressee only and should not be given or shown to any other person (other than employees, agents or consultants in connection with the addressee's consideration thereof). No transaction will be concluded in the UAE and any enquiries regarding the securities should be made with BTG Pactual CTVM S.A. at , Avenida Brigadeiro Faria Lima, 3477, 14th floor, São Paulo, SP, Brazil,